Atour Lifestyle Holdings (NASDAQ:ATAT) Is Very Good At Capital Allocation

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Atour Lifestyle Holdings (NASDAQ:ATAT) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Atour Lifestyle Holdings:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.31 = CN¥1.4b ÷ (CN¥7.2b - CN¥2.6b) (Based on the trailing twelve months to September 2024).

Thus, Atour Lifestyle Holdings has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 9.3%.

View our latest analysis for Atour Lifestyle Holdings

In the above chart we have measured Atour Lifestyle Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Atour Lifestyle Holdings .

What Can We Tell From Atour Lifestyle Holdings' ROCE Trend?

The trends we've noticed at Atour Lifestyle Holdings are quite reassuring. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 31%. Basically the business is earning more per dollar of capital invested and in addition to that, 339% more capital is being employed now too. So we're very much inspired by what we're seeing at Atour Lifestyle Holdings thanks to its ability to profitably reinvest capital.

What We Can Learn From Atour Lifestyle Holdings' ROCE

To sum it up, Atour Lifestyle Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 63% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Atour Lifestyle Holdings can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for ATAT on our platform that is definitely worth checking out.

Atour Lifestyle Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.